Torex Gold gets $375M for Morelos in Mexico

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2014-04-30

It took a while, but Torex Gold Resources (TSX: TXG; US-OTC: TORXF) has closed its $375-million project-finance facility — enough to fully fund its El Limon–Guajes project at its Morelos property in Mexico right through to production.

The company originally told the market it was looking to raise the large sum last November, but in dealing with six different banks, the extra time apparently was needed.

The funding is made up of $300 million worth of debt with interest payments set within a range of Libor + 4.25% to Libor + 4.75%.

There is also a $75-million cost overrun facility that can be tapped into for another 3% interest rate.

Scotiabank analyst Trevor Turnbull says the size of the deal is enough to cover construction costs, even if the company’s 60 million of $1.50 warrants expire out of the money when they come due this August.

But to borrow such a lofty sum, the company had to agree to a small hedge on future production. The hedging program kicks in six months into production and would account for 6% of the life-of-mine recoverable gold, which works out to 210,000 oz. gold.

Turnbull doesn’t think the hedge is too burdensome and he expects it to last less than two years, which would mean it would cover 40% of production over that time span.

Torex began construction last November and believes it will take 21 months to get to production. That would put the first gold pour in next year’s third quarter, as the company gets up to 190,000 oz. gold produced in 2016. From there it will ramp up to a 300,000 oz. per year rate. The company says it is under budget and ahead of schedule with the construction.

BMO Capital Markets analyst Andrew Breichmanas agrees that the deal will meet all of the company’s capex needs.

“Importantly, however, the larger US$375-million facility appears to leave the project fully financed without requiring an additional equity component,” he wrote in a research note.

Breichmanas says that by the end of last year the company had spent US$118.5 million of its US$725-million capital expenditure budget, leaving US$606.5 million until completion. Torex showed $216.6 million at year-end and did a bought-deal financing that raised another $143.8 million. That means that funds from the latest financing won’t be needed until the fourth quarter.

“Securing the remaining funds for construction is a material positive. BMO Research views El Limon–Guajes as one of the few development projects being advanced in an attractive jurisdiction offering quality and scale,” Breichmanas wrote.

Turnbull rates Torex shares as “sector outperform” with a $3 price target, while Breichmanas rates the stock “outperform,” with a $2 price target.

On April 16 — the day after releasing news of the financing — the company’s shares were up 13% to $1.13, on 3 million shares traded.

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